I've always thought that the neo-conservatives should be called neo-fascists - or maybe "Fascist light" - a gentler less obviously in your face form of fascism..posted by MonkeySaltedNuts at 10:53 PM on July 31, 2006

In most competitive systems there's a natural tendency for inequality to increase. That's a fundamental property of such systems, and it isn't really possible to prevent it without causing other, even more serious problems.

Unfortunately, "equality" is usually an unstable state. This has nothing to do with "fascism"; it's an emergent property competitive systems with certain characteristics (including many systems which do not include humans at all).posted by Steven C. Den Beste at 11:33 PM on July 31, 2006

Bertram's arguments are essentially Marxist, in that he argues that the "logic" of capitalism inherently leads to its own destruction. Instead of concentrating on class divide, he argues that government and business together will minimize dissent in an effort to protect profits.

Wealth inequality is quite high in the US compared to elsewhere, but I am not sure that Bertram's arguments are any truer now than when he made them in 1980, or during the trust-busting years of the early 20th century.posted by blahblahblah at 11:58 PM on July 31, 2006

Flee the USA. There is still some freedom and Liberal Democracy on offer in Canada, the Netherlands, and a few other places. Arrange alternative citizenship, right-thinking Americans, however you can.posted by Meatbomb at 11:59 PM on July 31, 2006

In most competitive systems there's a natural tendency for inequality to increase...

Though its a bit silly to argue about stuff at this level of abstraction, which is vague enough to be nearly meaningless, in biology, equality is not obviously any more unstable than inequality. Stability in ecosystems is strongly correlated with diversity, and the increasing dominance of one or a few species will naturally tend to reduce diversity. If anything, I'd argue that continual redistribution of income increases stability by preserving social mobility, and the incentive to try to get ahead (as opposed to letting the poor gradually get locked out, as you describe).posted by gsteff at 12:01 AM on August 1, 2006 [1 favorite]

Marxists are actually a lot like apocalyptic Christians. They have a prophet, and a book from that prophet. Their prophet tells them that their time will inevitably come, and their enemies will be vanquished.

And yet somehow it seems like it never happens. It must be frustrating.

Marx claimed that capitalism would automatically self-destruct -- but it hasn't happened here in the US, and shows no sign of doing so. Meanwhile, in the last hundred years every attempt to implement Socialism, no matter how or where or in what way, has been a dismal failure. It's almost as if Marx was wrong -- but of course the sainted Marx cannot have been wrong; that's unthinkable.

The response from Marxists has been to desperately try to shore up Marx's claim by moving it around and trying to redefine it. Lee Harris wrote an interesting article a few years ago explaining some of these things. The key phrase is "global immizeration".

The strange thing about apocalyptic Marxists is that they are on a quest to make people unhappy and spread misery -- because without misery there won't ever be a revolution to kill off capitalism, the way that the sainted Marx said there would be.

And if they can't find misery, they invent it, and try to convince people who actually are pretty satisfied that they should be feeling miserable. It's amazing to watch sometimes.posted by Steven C. Den Beste at 12:07 AM on August 1, 2006 [1 favorite]

Stability in ecosystems is strongly correlated with diversity, and the increasing dominance of one or a few species will naturally tend to reduce diversity.

If anything, I'd argue that continual redistribution of income increases stability by preserving social mobility, and the incentive to try to get ahead (as opposed to letting the poor gradually get locked out, as you describe).

How do I "get ahead" if every time I do my lead is taken from me and redistributed to others? And if I can't keep the results of trying to "get ahead", then why should I even try?

[I didn't say that the poor get locked out; I said that they don't win as much as those on top. That's not the same. What I said was that a rising tide can float all boats, as long as you accept that they won't all rise equally high.]posted by Steven C. Den Beste at 12:20 AM on August 1, 2006

...a rising tide can float all boats, as long as you accept that they won't all rise equally high.

Yes... Yes, I can accept that.

Wait. No I can't. Are we using 11th dimensional physical models or did you just overtax that analogy to the point that it became horribly broken?posted by cadastral at 12:36 AM on August 1, 2006

How do I "get ahead" if every time I do my lead is taken from me and redistributed to others? And if I can't keep the results of trying to "get ahead", then why should I even try?

Easy: you just redistribute away enough of the gains to compensate for the supposed widening of the basketball hoop. This naive conservative faith in the market is annoying. Does anyone actually think that Bill Gates is several million times smarter than the median American, or that most millionaires are several dozen times smarter? It would be nice if the inequality the market produces were itself efficient, but its obviously not. To the extent that luck (including luck of birth) skews resource distributions, it will be efficient to redistribute resources away from the merely lucky. And since we're human, with imperfect knowledge, sometimes the most efficient redistribution scheme we can come up with is heavily progressive taxation, based on the assumption that no individual's talents are 20x greater than the median.

I didn't say that the poor get locked out; I said that they don't win as much as those on top. That's not the same.

I expected that that's what you meant by this line in your article: "In fact, what you'd tend to expect was that once one team got enough ahead it would be virtually certain to win, with its score racing away from the other team. After all, once your hoop is smaller than the basketball, you don't even get a chance to score again no matter how hard you try. At that point the game's over even if there's still time on the clock."posted by gsteff at 12:38 AM on August 1, 2006

If the goal is generational, "I" doesn't have anything to do with it - you'll be dead, not ahead.posted by Chuckles at 12:38 AM on August 1, 2006

Easy: you just redistribute away enough of the gains to compensate for the supposed widening of the basketball hoop.

I've got nothing against this, but I'm not convinced it is necessary. Why not just create policy that narrows the hoop again for those that have already gotten ahead..

For example.. Good for Bill Gates, he did well. Now it is time to break up Microsoft, and create laws to guarantee that a similar monopoly is impossible. Something like requirements for interoperability, or published source code, or whatever else.. That gives all those small players room to have a win. Of course you will have to tweak again when the next Microsoft or Walmart comes along, but so what?

Easy: you just redistribute away enough of the gains to compensate for the supposed widening of the basketball hoop.

That would seem to foster growth of little guy, assuming it's redistributed to the little guy. But then, what of the folks that actually make the better widget? Or make it more efficiently? How do they grow and raise the bar for widget quality if the funds that'd do that are redistributed so that those who make crap widgets can "compete"? What, then, is the incentive for the crap widget maker to improve his widget? After all, no matter how poor his product or workmanship, he can count on a handout to keep him from going out of business.

So, really, what that would seem to do is not bring lower half up, rather bring everyone down to the level of "lowest common denominator".

Bill Gates, several million times smarter, and millionaires several dozens smarter? No, not smarter alone. But varying combinations of luck, vision, smarts, business acumen, intuition, fiscal responsibility, choosing quality advisors, management, salesmanship, and hundreds of other little traits... absolutely.

Since Gates was brought up, where would we be today if all the profits from Microsoft and Apple were siphoned off from the beginning and redistributed to those who didn't possess Gates' or Jobs' vision, luck, smarts, etc.? I'd argue that instead of a handful of companies doing amazing things, we'd have thousands of companies doing nothing (or very little) new. Who knows, maybe we'd all be on the edge of our seats in anticipation of the new 386/25MHz processor rumored to be ready for release by 2010!posted by CodeBaloo at 1:10 AM on August 1, 2006

How do they grow and raise the bar for widget quality

How many scientists have ever won the nobel prize twice? Or, lets forget prizes, how many scientists make more than one especially notable discovery?

Bill Gates hasn't continually raised the bar of widget quality. He did raise the bar, maybe even a couple of times, but Microsoft has been an albatross around the neck of computing for at least 7 years now, probably more like 12. Deciding exactly when to pull the plug is hard, of course..posted by Chuckles at 1:23 AM on August 1, 2006

Since Gates was brought up, where would we be today if all the profits from Microsoft and Apple were siphoned off from the beginning and redistributed to those who didn't possess Gates' or Jobs' vision, luck, smarts, etc.? I'd argue that instead of a handful of companies doing amazing things, we'd have thousands of companies doing nothing (or very little) new. Who knows, maybe we'd all be on the edge of our seats in anticipation of the new 386/25MHz processor rumored to be ready for release by 2010!

Speaking with a degree in CS, I can promise that this isn't the case, and it actually makes a good example of the point. IBM's idiotic decision to let Microsoft redistribute DOS in the early 80s, MS's big break, has been catastrophic for the state of the software industry. At that time, the software industry was inevitably going to standardize around some operating system- the interoperability benefits that standardization brought were massive. It was one of those positive feedback loop things. If the operating system that rose had had a proper permissions model or more flexible memory management model had risen instead, we wouldn't have had nearly as many problems with computer security as we've had. If a word processor that emphasized content, instead of font sizes (a la SGML or Latex), had risen instead of Word, businesses around the world would have been significantly more productive. If the dominant graphical interface framework had had an internal client/server division, like the X windowing system, the concept of the web application would probably have become popularized many years earlier. Microsoft brought standardization, but anyone could have done that. Their products, judged on their own merits, and not on the basis of their de facto popularity, were inferior, and the demand for backwards compatibility means that poor engineering decisions made in the 1980s are still holding us back (Vista is a great example of this). And even if none of this were true, and MS had always had superior products, reduced dominance by Microsoft over the past 20 years would still have improved computer security by reducing the symptoms of platform monoculture, and thus preventing viruses and worms from spreading as quickly.

If Microsoft had been prevented from gaining a monopoly, and several development platforms from several smaller companies had competed and been forced to provide interoperability via engineering, rather than by fiat, the global economy today would be measurably better off. And this is exactly the point I was trying to make above: massive inequality in any system leads to lack of diversity and stagnation. Microsoft's later versions of Windows didn't succeed because they were great products; they succeeded because of the inertia that had been gained by earlier versions of Windows, which in turn was derived from one colossally idiotic business decision made by IBM: luck.posted by gsteff at 1:44 AM on August 1, 2006

Chuckles -- Albatross it could be. But that doesn't answer the question: if we remove or limit the incentive, how does (or why would) the widget maker grow and raise the quality bar for widgetry? And, BTW, I'm not saying "continually" raise the bar... why bother raising it even once?

gsteff -- I won't (can't, actually) argue about what might have been with CS. The point is that by some combination of traits and actions, MS grew itself into the position it's in and the others did not. As I understand it, MS grew from some humble nothingness (like a spare room or garage or something... doesn't matter, really) into the goliath it is today. The others started from a similar nothingness point (or from some point better) and did not accomplish on the same scale.

On a light note, perhaps we could apply the same thinking to youth sports. Take youth baseball, since I coach. How about this: the teams that are well-coached, dedicated, bust ass in practice every day, and give 100% in every game should only earn 0.25 points per player that crosses home plate, while the opposing team of goof-offs -- kids who couldn't care less about baseball, practice half-heartedly (if that) once a week, and don't ever give their best effort -- scores a full point each. And if the better team still manages to take the lead, we could adjust the scoring so that we'd subtract a point from the good team and add a point to the goof-off's team for every good-team player that crosses the plate. I mean, it's only fair, right? Or else we might have one team {*gasp*} that is the league champion at the end of the season... and we simply can't have that... somebody's feelings might be hurt.

Now, I'm sure that analogy sucks... but it was fun to think about anyway!

Seems the message being advocated is: Work hard, work smart, and build success, young one. Just be careful not to work too hard, or too smart, or build too much success, or you'll be punished.posted by CodeBaloo at 2:32 AM on August 1, 2006

Does anyone actually think that Bill Gates is several million times smarter than the median American

On a light note, perhaps we could apply the same thinking to youth sports...

Actually, the NYT ran an article about this very issue a few years ago (link to free abstract). It basically looked at how coaches and leagues respond when two teams of greatly differing abilities play each other. And it found many cases (dealing with youth basketball in particular), coaches will pull their best players, instruct the teams not to use a full court press, etc. to preserve some element of sportsmanship and competition. And the way that the article was written, it seemed that this approach tended to receive much more support from parents than the alternative, which was to let permit blowout games. In fact, some school basketball leagues, including one in Prince George's County MD and the main one for the state of Michigan, have adopted formal rules providing different forms of handicaps for the losing team when the score discrepancy gets to a certain size. At the time the article was written, the National Federation of State High School Associations, which oversees sports for thousands of schools, was considering a similar policy.

The motivation behind those policies was sportsmanship... the supporters felt that the majority of athletes would work harder and learn more if they had a chance at winning than if their built in disadvantages, whatever they were, made losing a foregone conclusion. Again, basically the same point I've been making: diversity encourages competition. The top teams might not work as hard under rules like this, but the worse off teams would work harder, since they now had a chance at success, instead of having been trapped by possibily institutional disadvantages. Ultimately, does one team need to beat another by 80 points? Wouldn't 20 be enough to give them the motivation to try hard? Aren't the athletes overall better off if resources are redistributed so as to preserve competition?

Its not a matter of removing the spoils of success, i.e. guaranteeing equality of results. Its a matter of reducing those spoils enough to preserve flexibility and competition within in the system, i.e. guaranteeing equality of opportunity. And this is of course why liberals support the preservation of the death tax, and progressive taxation.posted by gsteff at 3:21 AM on August 1, 2006

I knew there was some reason I was hesitant to do the youth sports bit. And I understand completely the sportsmanship aspect -- it's the overriding principle on our teams. In retrospect, using pro sports would've made for a better example.

I still just can't get my head around the idea, though. I work in an emergency department, so lemme put this in an environment I'm familiar with. Here's how I see things as your closing paragraph presents...

Say, way back when, thirty companies marketed cardiac monitors. The monitors attached to the patient and were hardwired from the patient to a bedside monitor to a central monitoring station. All thirty companies are doing R&D to keep their monitors competitive.

Let's say one company's CEO/board/whatever, however, thought "what if we could make the whole thing wireless?" So, above and beyond what all 29 other companies were doing, this company, did the R&D, jumped through all the governmental hoops, got the funding, developed the partnerships, produced the product, went through the legal rigamarole of patenting their wireless cardiac monitoring system, marketed it, sold it to individual hospitals, installed the system, and supported it. The wireless system then caught on and soon every ICU, ER, and cardiac unit wanted it.

As I read your suggestion [redistribute away enough of the gains to compensate for the supposed widening of the basketball hoop], this company should get a nod and maybe a token crumb of extra financial reward , and the other 29 companies -- the ones that didn't have the insight or take the initiative to do any more than the minimum amount of work needed to tread water -- should receive the overwhelming bulk of the rewards? And, on top of that, as an extra-special bonus reward for all the effort and innovation it's shown above and beyond its only-enough-to-get-by competitors, we should increase the one company's tax burden?

So, as the CEO of one of the other 29 companies, I'm wondering: If I advance my field, I get virtually no usable business advantage and I get taxed more... but if I sit back and let my competitor spend her company's time and money to advance the field, I profit anyway and her company gets taxed more. I'm a CEO... I'm no idiot... why, then, would I be stupid enough to innovate?posted by CodeBaloo at 4:33 AM on August 1, 2006

Part of what colors this debate is whether one's world view on standard of living is absolute or relative. Relative world view holders observe the widening gap between the richest and poorest and grow concerned. Absolute world view holders look at whether people have a higher standard of living today vs some point in the past. I tend to fall in the latter category. To me, in a perfect theoretical world, redistribution should not occur unless the standard of living stalls or decreases for those with lower incomes.
Of course, the problem with this approach (and with any income redistribution approach) is who gets to choose and enforce the income redistribution methods? Given this problem and human nature, its not really a surprise that many Marxist-type governments are also high in corruption.posted by forforf at 4:57 AM on August 1, 2006

Oh, another thing on this topic. I'm rarely for redistributing wealth, due to it punishing success (as others have noted). However, I am all for redistributing opportunity and would also strongly agree that opportunity should be equal. In other words, to use the basketball game analolgy above. Nobody should get a bigger hoop than anybody else, there should be equal access to equipment and practice facilities, etc. If one team should tremendously outperform another, you don't handicap that team, you look to see if that team found opportunities that the other teams didn't have (broader recruitment base?) and if the opportunity is not equal, fix that issue.posted by forforf at 5:02 AM on August 1, 2006

Since we're using Microsoft as the standard of an inequitable distribution of wealth, let's not forget the biggest failing of the government with regards to why that is so. Microsoft cheats. They've used unethical and illegal business practices since day one and the courts have (mostly) agreed, years later. I would argue that the explanation for why Billy G is several million times richer than average is less to do with Microsoft's products than with Microsoft's business tactics, which should certainly not be rewarded.

The government's job is to keep the playing field level. That means no handouts to one company over another or one industry over another. With a level playing field, no one company/individual would have an 'unfair' advantage, meaning new companies are not prevented from competing. A level playing field doesn't mean everyone has to finish first, because that also means everyone finishes last.

Enforce the laws on the books (especially labor!), get better regulation on corporate governance and incestuous boards and get rid of the @#$% tarrifs and subsidies for unprofitable industries and we won't have nearly as much of a problem.posted by Skorgu at 5:50 AM on August 1, 2006

You know, even Canada has its billionaires (not counting Conrad Black, who's a nothing-aire right about now). Having a sensible tax policy does not mean that innovation and business success go away.posted by clevershark at 5:52 AM on August 1, 2006

If your statements looks complicated enough and talk about abstract, but possible subject it is possible that some people think you are intelligent and saying something important. Expecially if you touch their interest or what they incorrect believle to be either wrong or right or neither, you may attempt to become the next Rush Limbaugh. Noticeably the number or narcofascit and cryprocommunist will distract soon you enough while you waste your time figuring out solution to false arguments, born just to stuck your head in a loop.

Hey Steve C. Den Beste... Capitalism hasn't self destructed because we don't have real capitalism. We have a very controlled economy. Only it's controlled for the benefit of the oligarchy and back, ultimately, by a constant and total assault on what constitutes American 'culture' that's been going since before WWII.

Bailing out massive corporations while preaching no government interference when small business is involved is only one example of the twisted, visible-handed techniques that lift up big biz and hurt small biz. Wall Street policies that pervert opportunity beyond belief...how about them trying to destroy CostCo's good labor practices to get them to squeeze a few more percent profit, even though the company is already massively profitable, has no employee turnover compared to the competition, and actually makes their employees happy? Noooo! How fucking Marxist! How dare you show an example of ethical capitalism working?!

You can't seriously believe we have Capitalism, can you? How the hell do you explain Bechtel and Halliburton, made up of the most powerful government players (some of them still in office, Mr. Cheney) of the last fifty years and given trillions (in toto) in no-bid contracts over the same period?

As for your comments about happiness... well, gee, isn't it weird how those socialist Scandinavian states not only have much longer lives but also higher happiness scores on the recent index?

It must really suck to have reality blow holes in your arguments and articles. I don't advocate forcible redistribution of wealth, but I certainly advocate a forcible leveling of the playing field. What exists now in the US and its emulators is as big a lie as we've had since Stalin told the world how much he cared about the worker.

And it's a sick, sick joke, MonkeySaltedNuts, that the Neocons and their insane mentor, Strauss, claim to be anti-fascist. Their techniques are nothing but.posted by the_savage_mind at 6:17 AM on August 1, 2006 [2 favorites]

Don't have much in the way of data or even multiple anecdoes, but it's been suggested to me that the US is becoming a lot more like S. America every year -- concentration of wealth, fascistic tendencies in government, political behavior, and law enforcement overlaying constitutional democracy, etc. Thinking of getting fluent in Spanish and seeing if I can get an IT job down there for a change of scenery, if I can stomach what I'm told is much more blatant corruption...posted by pax digita at 6:50 AM on August 1, 2006

So, as the CEO of one of the other 29 companies, I'm wondering: If I advance my field, I get virtually no usable business advantage and I get taxed more... but if I sit back and let my competitor spend her company's time and money to advance the field, I profit anyway and her company gets taxed more. I'm a CEO... I'm no idiot... why, then, would I be stupid enough to innovate?

I think what you've described here is actually in part a danger of a society that begins to value everything by its potential economic returns. There are in fact reasons to do something and do it well -- even as a business entity -- other than profit, and I think the best businesses actually learn to harness this motivation along with the basic business discipline to survive, rather than becoming simple hill-climbing algorithms.

That said, of course you don't want to eliminate the profit motive. And maybe I'm wrong and MeFi is really home to more True Pinko Commies(TM) than I think, but I don't think that's what people are really talking about that here. When it's said that "redistribute away enough of the gains", you could read that as "take away almost all of any gains immediately," which of course would be disastrous. But I doubt most people mean that, just a modestly progressive taxation scheme. Yeah, even 30% or 40% can hurt, but I doubt it would do any such thing as remove incentive -- even if you have to give away a bigger slice, dramatically increasing the size of your pie still means you have a lot more to do with as you please.

I've moved up and down tax brackets, and I don't become discouraged and work less because I'm taking home less of more when I move up. And however much earning less might require me to work more, I certainly don't work more because I'm so excited that I'm taking home more of less. Give someone an opportunity to invest themselves in something cool that could make them millions and tell them the catch is they'll have to give half back to society if it works out and I'd think most people would find their enthusiasm undimmed.posted by weston at 6:55 AM on August 1, 2006

Given this problem and human nature, its not really a surprise that many Marxist-type governments are also high in corruption.
As opposed to the pure-as-the-driven-snow capitalist governments? Please. Codifying the corruption into law (as capitalist democracies tend to) hardly makes them less corrupt. Just more elegant about it.posted by Thorzdad at 6:56 AM on August 1, 2006

how about them trying to destroy CostCo's good labor practices to get them to squeeze a few more percent profit, even though the company is already massively profitable, has no employee turnover compared to the competition, and actually makes their employees happy? Noooo! How fucking Marxist! How dare you show an example of ethical capitalism working?!

You know, I agree with some of what you're saying, and that's a shame because the text I highlighted above shows what a damn fool you are. Firts of all, what Wall Street proper wants is churn-- commissions and offerings. It could give two shits about employee comp at a goddamn warehouse club, unless giving a damn would present an opportunity for them to make money.

No one (who matters) is trying to destroy Costco, and if they were (like there's some grand conspiracy!) how would they do it? Probably via an LBO, right? Or a hostile takeover of some sort? Care to proffer a shred of evidence that this is in the works?

If anyone in that space is at risk, it's BJ's.

Oh, and my back-of-the-envelope ROIC numbers suggest that Costco is by no means "massively profitable." As the firm now stands, it's about 20bps short of covering its cost of capital.posted by Kwantsar at 7:02 AM on August 1, 2006

Yeah, even 30% or 40% can hurt, but I doubt it would do any such thing as remove incentive -- even if you have to give away a bigger slice, dramatically increasing the size of your pie still means you have a lot more to do with as you please.

Well, at the margin of course it removes incentive, and no serious economist would claim otherwise. If you're going to take that away for the common good, fine, argue that the loss of incentive is outweighed by other benefits.

Now, taking that away from corporations, on the other hand, really does hurt. The US has some of the highest tax rates in the developed world, and it's no wonder that firms flee to Ireland. Hell, John Kerry admitted as much.posted by Kwantsar at 7:09 AM on August 1, 2006

Marx claimed that capitalism would automatically self-destruct -- but it hasn't happened here in the US, and shows no sign of doing so.posted by Steven C. Den Beste at 12:07 AM PST

Yes, that is because the US is not a system of capitalism. Kind of the whole POINT of the "A new, friendly face on Fascism" post.

But feel free to think it is while hedge funds, S&Ls, Chrysler get bailouts. And feel free to think such as energy prices keep rising as avaible supply of world oil shrinks.posted by rough ashlar at 7:37 AM on August 1, 2006

He should probably also be made aware that it completely undermines the faux-folksy vibe of one's sports analogies if one doesn't know that there is no sport in the free world in which scoring is referred to as "making a score."posted by gompa at 9:24 AM on August 1, 2006

No one (who matters) is trying to destroy Costco

That they aren't consciously trying to destroy Costco as a company doesn't mean they aren't a) working to destroy it unknowingly for short-term profit and b) working to nip Costco's employee policies before they spread to other corporations and hurt those blessed razor-thin margins they love so mucyh. Who's a fool? You're a fool. Dumb-ass. You're naive as fuck, too.posted by the_savage_mind at 9:49 AM on August 1, 2006

That they aren't consciously trying to destroy Costco as a company doesn't mean they aren't a) working to destroy it unknowingly for short-term profit and b) working to nip Costco's employee policies before they spread to other corporations and hurt those blessed razor-thin margins

Tell me how Wall Street does this. Tell me.

they love so mucyh. Who's a fool? You're a fool. Dumb-ass. You're naive as fuck, too.

My brief pang of regret at calling you a name has subsided, thanks. Now maybe you could tell me how Wall Street can destroy Costco.

Earnings: Costco profit rises 14% in quarter
But stock slips as performance falls a penny short of estimates

That's from last month.

Double the fool and double the asshole you.

Why don't you tell me what that snippet has to do with anything? When earnings fall short of market expectations, stocks usually trade down. How does this support your argument?

And, for the love of Christ, when a firm is not covering its capital costs, it isn't "profitable" in any meaningful economic sense.posted by Kwantsar at 10:04 AM on August 1, 2006

My brief pang of regret at calling you a name has subsided, thanks.

Wow, you're trying to make me feel guilty about the name calling after you started it? You've got balls. Not much in the way of brains, but balls.

Now maybe you could tell me how Wall Street can destroy Costco.

They do it by changing their policies through artificial and unwarranted expectations pushed on them. Policies changed to more match the, say, Walmart model. With Walmart's growth... um is it up or down? You tell me.

When earnings fall short of market expectations, stocks usually trade down. How does this support your argument?

Right, because Wall Street's expectations are healthy and rooted in reality. Not. 14% isn't enough, right? I included that because it was part of the headline of the article. It would have been dishonest to leave it out. But the fact that Wall Street decides that 14% isn't enough quarterly growth and thus the stocks go down 1 percent means jack squat about how healthy a company is. I probably should have said 'healthy profits' instead of 'massive'.posted by the_savage_mind at 10:22 AM on August 1, 2006

Well, first of all, you still don't know what you're talking about. You seem to have Wall Street confused with the buy side. Costco hasn't used the Street for funds since 1996. The Chairman and CEO (who founded the company) have been with at Costco since the 1980s, and unless someone attempts a hostile takeover, no one is going to force them to change their policies. You further seem to be under the false impression that people who run money look at the recommendation on the research report, rather than using the research as a supplement in fact-finding. Additionally, the two largest holders (25% of the free float) are run out of Arizona (Davis) or London (BGI). In fact, as I look at the holders of the firm, I can't find a single activist. Costco is about as removed from Wall Street as a public firm can be.

The only way that Wall Street can do anything meaningful to the company is to buy some shares, get some board seats, and threaten or fire the management. They cannot make the stock go down. Only the shareholders can do that, by selling the shares. And there's not enough evidence of mismanagement to justify the raid.

Rightly or wrongly, Costco and its model of self-interested beneficence has not come under attack at all.

Now, that 14% figure is not quarterly growth-- a mistake that no one who knew the first thing about securities analysis would make. See in your little article, where it says "in the year-ago period"? The article is talking about year-on-year third quarter growth. Is that growth expectation unreasonable? First of all, that was the top part of management's range, so management (again, management that has been with the company 20+ years) didn't think it was unreasonable. Costco has posted annual EPS growth in excess of 14% in 7 of the last 9 years, so history indicates that it's not unreasonable, either. I don't know the specifics of Costco's business, but 14% growth isn't extraordinary for a company that hasn't fully penetrated its market. Figure you can get 3% from inflation, 5% from volume, 5% from new stores, and 1% from margin improvements. Voila. 14% growth.

Wall Street and others value the company on the present value of anticipated future cash flows, and price movements on earnings releases are fully consistent with this, as explained here.

And I'd like to acquaint you with what economic profit is. If I gave you a million dollars, and a year later you had a million-and-one dollars, you would only have earned accounting profits. Every piece of inventory, every square foot of store, and every dollar of ad spend have an opportunity cost. Until you realize this and incorporate it into your line of thinking, your contributions here will continue to look like those of an angry high school student, rather than an informed critic of the system.posted by Kwantsar at 11:04 AM on August 1, 2006 [2 favorites]

Rightly or wrongly, Costco and its model of self-interested beneficence has not come under attack at all.

Except in terms of the very public statements to the contrary by Wall Street figures. Even if they don't control Costco, which I don't recall saying they did, they're trying to influence the way the company is run. I'm aware that Costco's executive board (or at least those who matter) aren't listening. They're in a position to do that. I initially used Costco as an example. There are plenty of other companies who are influenced directly by stock markets in terms of being forced into cost-cutting behavior that don't take a long-term view on the health of the company.

I admit that I can't argue with you on financial specifics of a corporate structure. It's not something I've been educated in. However, I am educated enough to note that not one of your stats so far invalidates the concept that there is an overwhelming push by Wall Street for corporate behavior that takes absolutely no consideration of employees into account. That pushes thinner and thinner margins at all cost. Meanwhile, I do understand that the 14% meant over the quarter the previous year. I said quarterly again when I should have said annual over the same quarter. Mea culpa.

Further, I also know enough to know that 14% growth is anything but healthy only in Bizarro world. Which is where people who theorize about finance and economics but have no clue about actually running a company really live.posted by the_savage_mind at 12:08 PM on August 1, 2006

Meanwhile, in the last hundred years every attempt to implement Socialism, no matter how or where or in what way, has been a dismal failure.

On what planet? Socialism is embedded successfully in nearly every government on earth. [ever hear of Social Security?] Care to back up that specious statement now?

You can't seriously believe we have Capitalism, can you? How the hell do you explain Bechtel and Halliburton, made up of the most powerful government players (some of them still in office, Mr. Cheney) of the last fifty years and given trillions (in toto) in no-bid contracts over the same period?

Exactly. How can we say capitalism is successful if it has never been done? It's always a mixed bag you see, whether talking socialism or capitalism or communism or whatever.posted by nofundy at 12:52 PM on August 1, 2006

Well, at the margin of course it removes incentive, and no serious economist would claim otherwise.

Serious economists seem to have their own set of problems. :) But I acknowledge there's a marginal effect, what I'd also claim is that for most places where incentive matters, it's possible to have even a significantly progressive taxation system that doesn't remove too much incentive.

If you're going to take that away for the common good, fine, argue that the loss of incentive is outweighed by other benefits.

I think most people agree on this as a general principle. The disagreement usually shows up in the weights one gives each side. :)posted by weston at 2:51 PM on August 1, 2006

It's not enough if it could've been more.

I can't tell if this was meant to be satirical..posted by Chuckles at 3:48 PM on August 1, 2006

the_savage_mind there are stranger things in Heaven and Earth than are drempt of in your philosophies. Not all companies are publicly owned. If you want the cash influx of public finance, you IPO and deal with the downside which is that you now have thousands of owners. If you don't think its an acceptable tradeoff, you stay private like UPS or do a dual-class stock like Cablevision.

You seem to think that the Stock Market (as an indivisible entity with an Agenda) has some grudge against The Worker. Companies run themselves however they see fit and subjecting themselves to the whims of the market is a choice they have all made. Some do it intelligently like Google and don't offer guidance and retain control among the founders, and some kneel on the altar and drink in the kool-aid like GM, anything to please the shareholders. If Costco is under seige by The Market, it can buyback its shares or go private again.

The bottom line is that yes, the market can demand stupid things of the companies that let it. This is not news or particularly a problem. The pendulum has swung far in the direction of massive public ownership and will likely swing back a bit towards controlled voting or private entities.posted by Skorgu at 8:28 PM on August 1, 2006

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